10 Take-Aways: A Book you must read: The Psychology of Money
I share 10 takeaways from the book "The Psychology of money" in 10 dense and information-rich points.
I have started a new section on my new blog.#10takeAwaysThe purpose is to share dense knowledge bytes from the books I read. I very much encourage you to read the book but if you are pressed for time, these posts should help.
The books also can cover a variety of topics and go to lengths and breadths.
I will pick the top 10 lessons from every book and share them in easy and palatable bytes.
- When finances are taught from early childhood, there is too much focus on rules and laws instead of psychology covering emotions and nuances. The study of the history of greed, insecurity, and optimism provides a huge window into why people bury themselves in debt. A financial study of debt is not required for that. 🤑
- The skill which makes you wealthy and which keeps you wealthy are different. Both are equally important to observe, learn & practice.
- Timing is everything. Someone who grew up during the 1940s in the US when the stock markets doubled vs Germany or Japan which paid the prices of World war II, timing plays a huge role in the psychology of how you invest. The same is true for the era where Stock markets were standstill compared to an era where stocks were going through the roof.
- Risk and Luck and doppelgangers. Opportunities, where the downside is in complete ruin, must be avoided. Avoid single points of failure. Avoid ruin. You want to be able to survive and keep playing the game. There is no reason to risk what you have and need for what you don't have and don't need. "You can be risk-loving and yet completely averse to ruin" - Nassim Taleb.
- The margin of safety should be appreciated. "The purpose of the margin of safety is to render the forecast unnecessary" - Graham bell
- The hardest skill in finance is to get the goalpost to stop moving. It is critical to know when you have had enough. Your best shot at keeping things that are invaluable to you(reputation, independence, family, friends, happiness, peace of mind) is to know when it is time to stop taking risks.
- Compounding is a no-brainer to wealth. The biggest secret behind compounding is 'undisturbed compounding'. Warren buffet's massive investment success came from it. Smart decision making, reading, intelligence, financial acumen are all contributing factors too. "First rule of compounding is to never interrupt it unnecessarily" - Charli Munger
- The ability to do what you want, when you want, for as long as you want, has infinite ROI.
- People are poor forecasters of future selves. Everything changes and must change. Anchoring decisions to past efforts that can't be refunded will be a huge cause for disappointment. Don't have the concept of Sunk costs hold you back.
- Instead of being persuaded by others' success, identify if they are playing on the same field(risk appetite, time horizon, investment behaviors) where you want to be. Only then act upon that advice.
Thanks for reading.
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